<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
/X/ Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the quarterly period ended May 31, 1996
Or
/ / Transition report under section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from ___________ to ___________
Commission File Number: 0-17442
MERITAGE HOSPITALITY GROUP INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
MICHIGAN 38-2730460
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
40 PEARL STREET, N.W., SUITE 900
GRAND RAPIDS, MICHIGAN 49503
(Address of Principal Executive Offices)
(616) 776-2600
(Issuer's Telephone Number, including Area Code)
THOMAS EDISON INNS, INC.
(Former Name, Former Address, and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
-- --
As of July 12, 1996, there were 3,020,150 outstanding Common Shares, $.01 par
value.
Transitional Small Business Disclosure Format (check one): YES NO X
--- ---
Page 1 of 14 pages
Exhibit Index on Page 14
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The following unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, they do not contain all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
solely of normal recurring adjustments) considered necessary for a fair
presentation of the financial position, results of operation, shareholders'
equity and cash flows of the Company have been included. For further
information, please refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-KSB/A Amendment No. 2
for the fiscal year ended November 30, 1995. Certain reclassifications have been
made in 1995 to conform with the 1996 presentation.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
2
<PAGE> 3
MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF MAY 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS
<S> <C>
Cash and cash equivalents $ 2,106,732
Trade accounts receivable, less allowance
for doubtful accounts of $29,000 714,033
Inventories 167,357
Refundable income taxes 313,391
Prepaid expenses and other current assets 357,390
------------
Total Current Assets $ 3,658,903
PROPERTY, PLANT AND EQUIPMENT, NET 13,538,234
DEFERRED INCOME TAXES 437,100
OTHER ASSETS 1,364,069
AMOUNTS DUE FROM STOCKHOLDER 32,068
------------
Total Assets $ 19,030,374
============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 882,928
Accrued expenses 840,586
------------
Total Current Liabilities $ 1,723,514
LONG-TERM DEBT 14,931,016
DEFERRED INCOME TAXES 752,000
Total Liabilities $ 17,406,530
------------
SHAREHOLDERS' EQUITY
Preferred Shares - $.01 par value;
authorized 5,000,000 shares; issued and
outstanding, none --
Common Shares - $.01 par value;
authorized 30,000,000 shares; issued and
outstanding, 3,020,150 shares 30,200
Additional paid in capital 10,684,750
Note receivable from sale of shares (5,152,662)
Retained earnings (deficit) (3,938,444)
------------
Total Shareholders' Equity $ 1,623,844
------------
Total Liabilities and Shareholders' Equity $ 19,030,374
============
</TABLE>
3
<PAGE> 4
MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE SIX MONTH PERIODS ENDED MAY 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
NET REVENUE
<S> <C> <C>
Room revenue $ 2,571,115 $ 2,357,509
Food revenue 2,830,813 2,627,183
Beverage revenue 1,030,977 1,030,819
Telephone revenue 51,751 --
Sundry revenue 207,567 115,238
----------- -----------
Total Revenue $ 6,692,223 $ 6,130,749
----------- -----------
COST AND EXPENSES
Cost of food sales $ 1,065,270 $ 1,019,930
Cost of beverage sales 273,992 265,874
Operating expenses 3,522,785 3,415,533
General and administrative expenses 1,490,421 1,537,820
Depreciation and amortization 449,377 613,900
----------- -----------
Total costs and expenses $ 6,801,845 $ 6,853,057
----------- -----------
LOSS FROM OPERATIONS $ 109,622 $ 722,308
----------- -----------
OTHER INCOME (EXPENSE)
Interest expense $ (724,745) $ (732,651)
Interest income 357,652 188,720
Other (85,889) 234,013
----------- -----------
Total other income (expense) $ (452,982) $ (309,918)
----------- -----------
Loss before federal income tax $ 562,604 $ 1,032,226
FEDERAL INCOME TAX BENEFIT 191,286 350,900
----------- -----------
Net loss $ 371,318 $ 681,326
=========== ===========
LOSS PER SHARE $ 0.12 $ 0.45
=========== ===========
NUMBER OF SHARES OUTSTANDING 3,020,150 1,520,150
=========== ===========
</TABLE>
4
<PAGE> 5
MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE THREE MONTH PERIODS ENDED MAY 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
NET REVENUE
Room revenue $ 1,433,650 $ 1,339,655
Food revenue 1,416,899 1,353,602
Beverage revenue 481,027 506,114
Telephone revenue 28,383 --
Sundry revenue 49,439 64,151
----------- -----------
Total Revenue $ 3,409,398 $ 3,263,522
----------- -----------
COST AND EXPENSES
Cost of food sales $ 522,460 $ 528,545
Cost of beverage sales 130,779 130,374
Operating expenses 1,659,318 1,740,575
General and administrative expenses 713,830 886,290
Depreciation and amortization 156,056 302,538
----------- -----------
Total costs and expenses $ 3,182,443 $ 3,588,322
----------- -----------
EARNINGS (LOSS) FROM OPERATIONS $ 226,955 $ (324,800)
----------- -----------
OTHER INCOME (EXPENSE)
Interest expense $ (329,030) $ (401,471)
Interest income 187,372 188,720
Other 87,052 234,013
----------- -----------
Total other income (expense) $ (54,606) $ 21,262
----------- -----------
Earnings (loss) before federal income tax $ 172,349 $ (303,538)
FEDERAL INCOME TAX EXPENSE (BENEFIT) 58,600 (103,100)
----------- -----------
Net earnings (loss) $ 113,749 $ (200,438)
=========== -----------
EARNINGS (LOSS) PER SHARE $ 0.04 $ (0.13)
=========== ===========
NUMBER OF SHARES OUTSTANDING 3,020,150 1,520,150
=========== ===========
</TABLE>
5
<PAGE> 6
MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTH PERIOD ENDED MAY 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Note
Additional Receivable
Preferred Common Paid-in From Share Accumulated
Shares Shares Capital Sale Deficit Total
------ ------ ------- ---- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance at
November 30, 1994 $ -- $15,200 $ 5,217,820 $ -- $ (7,950) $ 5,225,070
Issuance of
Common Shares -- 15,000 5,466,930 (5,481,930) -- --
Recognition of
interest income on
note receivable
from sale of shares -- -- -- (120,602) -- (120,602)
Net loss -- -- -- -- (2,049,102) (2,049,102)
------ ------- ----------- ----------- ----------- -----------
BALANCE AT
NOVEMBER 30, 1995 $ -- $30,200 $10,684,750 $(5,602,532) $(2,057,052) $ 3,055,366
------ ------- ----------- ----------- ----------- -----------
Issuance of
Common Shares -- -- -- -- -- --
Dividend paid ($.50 per share) -- -- -- -- (1,510,075) (1,510,075)
Recognition of
interest income on
note receivable
from sale of shares -- -- -- (300,130) -- (300,130)
Prepayment of note receivable -- -- -- 750,000 -- 750,000
Net loss -- -- -- -- (371,318) (371,318)
------ ------- ----------- ----------- ----------- -----------
BALANCE AT MAY 31, 1996 $ -- $30,200 $10,684,750 $(5,152,662) $(3,938,444) $ 1,623,844
====== ======= =========== =========== =========== ===========
</TABLE>
6
<PAGE> 7
MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED MAY 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (371,318) $ (681,326)
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 449,377 613,900
Deferred income tax expense (benefit) 11,192
Interest income on note receivable from sale of shares (300,130)
Gain on sale of land (234,113)
(Increase) decrease in assets
Accounts receivable (143,605) 240,851
Other current assets and deferred charges 460,761 (106,510)
Refundable federal income taxes (191,286) (236,105)
Increase (decrease) in liabilities
Accounts payable and accrued expenses (807,238) 210,529
------------ -----------
Net cash used in operating activities $ (903,439) $ (181,582)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (769,267) (201,248)
Proceeds from sale of property, plant and equipment -- 375,000
Decrease (increase) in other assets (486,371) 76,159
Additions to amount due from stockholder (31,762) (85,121)
Payment on amounts due from stockholder 435,124 1,880,377
------------ -----------
Net cash provided by (used in) investing
activities $ (852,276) $ 2,045,167
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings 14,875,000 --
Proceeds from short-term borrowings (2,300) --
Proceeds (payments) related to borrowing
from shareholders -- (250,463)
Principal payments of long-term debt (11,587,069) (280,392)
Partial prepayment of note receivable 750,000 --
Dividend Paid (1,510,075) --
------------ -----------
Net cash provided by (used in) financing $ 2,525,556 $ (530,855)
------------ -----------
Net increase (decrease) in cash 769,841 1,332,730
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 1,336,891 621,761
------------ -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 2,106,732 $ 1,954,491
============ ===========
</TABLE>
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following is management's discussion and analysis of certain
significant factors which have affected the Company's results of operations and
financial condition during the periods included in the accompanying unaudited
consolidated financial statements.
PLAN OF OPERATION
- -----------------
From the Company's inception in 1986 until January 1996, Donald W.
Reynolds served as Chairman of the Board, President, Chief Executive Officer,
Treasurer and Secretary of the Company, and the Company engaged Innkeepers
Management Company, a Michigan corporation wholly owned by Mr. Reynolds
("Innkeepers"), to manage the Company's business, including the Hotels, pursuant
to a Management Agreement.
As reported in the Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission ("SEC") on February 5, 1996, Mr. Reynolds
was removed as an officer and director of the Company by the St. Clair County
(Michigan) Circuit Court on January 8, 1996, in the course of a proceeding
brought by TEI Acquisition, Inc. ("TAI") (Case No. 95-00-33-88-CZ, Deegan, J.).
The court appointed Frank O. Staiger as acting President and director. On
January 25, 1996, Meritage Capital Corp., formerly known as Meritage
Hospitality Group Incorporated, the Company's majority shareholder, amended the
Company's Bylaws to classify the Board of Directors into two classes, expanded
the Board of Directors to 10 directors and appointed five new directors:
Christopher B. Hewett, David S. Lundeen, Joseph L. Maggini, Robert E. Schermer,
Jr. and Robert E. Schermer, Sr. On January 25, 1996, the Company's newly
expanded Board of Directors removed David C. Distad, son-in-law of Mr.
Reynolds, as Vice President and Chief Financial Officer of the Company and
terminated the Management Agreement with Innkeepers. The Company no longer
employs a third party management company. Instead, the Company has installed
new management to operate its business directly in an effort to utilize more
efficiently the Company's resources and employees.
Since January 25, 1996, the Company has fundamentally changed its
operations in a manner management believes will have a positive effect on future
performance. During the first quarter of fiscal 1996, the Company (i) elected
new executive officers with extensive experience in the hospitality industry,
(ii) began implementing a new management structure, (iii) closed on $15 million
in new mortgage financing, (iv) began implementing a capital expenditure program
to improve and upgrade its properties, and (v) began implementing sales and
marketing programs.
RESULTS OF OPERATIONS
- ---------------------
Sundry revenues, previously included as other income in 1995 in the
amount of $115,238 for the six-month period and $64,151 for the second quarter,
have been reclassified to "Sundry revenue" to conform with the 1996
presentation.
Total Revenue
The Company's total revenue for the six-month period ending May 31,
1996 increased 8.4% to $6,692,223 as compared to $6,130,749 for the same period
of 1995. Total revenues for the second quarter of 1996 and 1995 were $3,409,398
and $3,296,522 respectively, an increase of 3.4%. The increase in total revenues
is attributable to an increase in hotel occupancy. For the six-month period
ending May 31, 1996 and 1995, the hotel occupancy was 53.9% and 49.5%,
respectively. For the second quarter of 1996 and 1995, hotel occupancy was 57.1%
and 54.9%, respectively.
8
<PAGE> 9
Cost of Sales
Cost of food sales for the six-month period ending May 31, 1996 and
1995 was $1,065,270 (37.6%) and $1,019,930 (38.8%), respectively; cost of
beverage sales was $273,992 (26.6%) and $265,874 (25.8%), respectively. For the
second quarter of 1996 and 1995, cost of food sales was $522,460 (36.8%) and
$528,545 (39.0%), respectively; cost of beverage sales was $130,779 (27.2%) and
$130,374 (25.8%), respectively. The percentage decrease in cost of sales is a
result of the increase in Food & Beverage revenues.
Operating Expense
For the six-month period ending May 31, 1996, operating expenses
increased 3.1% to $3,522,785 as compared $3,415,533 for the same period of 1995.
The increase in operating expenses is directly related to the increase in hotel
revenues and occupancy. For the second quarter of 1996, operating expenses
decreased 4.6% to $1,659,318 as compared to $1,740,575 for the same period of
1995.
General and Administrative Expense
For the six-month period ending May 31, 1996, general and
administrative expenses decreased $47,399 (3.1%), as compared to the same period
of 1995. For the second quarter of 1996, general and administrative expenses
decreased $172,460 (19.5%) as compared to the same period of 1995. The decrease
consists primarily of the recovery of debt of $62,225 previously written-off and
the reimbursement of administrative expenses of $98,946 which were previously
recorded as amounts due to related parties.
Depreciation Expense
Depreciation expense for the six month period ended May 31, 1996 was
$449,377 as compared to $613,900 for the same period in 1995. For the second
quarter of 1996, depreciation expense was $156,056 as compared to $302,538 for
the same period of 1995. Fixed assets acquired in 1986, the year of
incorporation, which had a ten year life became fully depreciated in 1995. As
a result, depreciation expense for the six month period ended May 31, 1996 is
lower than for the same period in 1995.
Interest Expense
Similar to other businesses in the hospitality Industry, the Company is
sensitive to changes in interest rates and costs. The Company currently has
indebtedness of $14,875,000, $12,000,000 of which is subject to interest at a
floating rate of 1% over the prime rate and $2,875,000 of which is subject to
interest at a floating rate of 8% over the prime rate. Increases or decreases
in the prime rate would increase or decrease the Company's interest expense for
a fiscal year. In fiscal 1995, the Federal Reserve Board increased the
discount rate on several occasions, resulting in increases in the prime rate.
Interest Income
Interest income for the six-month period ending May 31, 1996 was
$357,652 as compared to $188,720 for the same period of 1995. For the second
quarter of 1996, interest income was $187,372 as compared to $188,720 for the
same period last year. Interest income consists primarily of interest on notes
receivable from the sale of Common Shares ($300,130 for the six-month period
ending May 31, 1996, and $144,644 for the quarter ending May 31, 1996).
Interest income for the six month period ended May 31, 1995 was primarily paid
on amounts due from parties related to the Company.
Other Income (Expense)
As previously mentioned, other income for 1995 has been reclassified to
facilitate comparison of operations. For the six-month period ending May 31,
1996, other expenses of $85,889 includes $172,941 of expenses incurred to effect
the change in control and management of the Company and $87,052 of income from
collection of outstanding receivables.
Net Earnings (Loss)
Net loss for the six-month period ending May 31, 1996 and 1995 was
$371,318 and $681,326, respectively. Net earnings for the second quarter of 1996
were $113,749 as compared to a net loss of $200,348 for the second quarter of
1995.
Earnings (Loss) per Share
Loss per share for the six-month period ending May 31, 1996 and 1995
was $.12 and $.45, with 3,020,150 and 1,520,150 shares outstanding,
respectively. For the second quarter of 1996, earnings of $.04 per share were
realized as compared to a loss of $.13 per share during the same period in 1995,
with 3,020,150 and 1,520,150 shares outstanding, respectively.
9
<PAGE> 10
FINANCIAL CONDITION AND LIQUIDITY
- ---------------------------------
As of May 31, 1996 and 1995, the Company's current assets exceeded its
current liabilities by $1,935,389, and $1,863,753, respectively. For these
periods, the ratios of current assets to liabilities were 2.1:1 and 2.2:1
respectively.
As of February 29, 1996, Donald W. Reynolds, the Company's former
President and parties affiliated with him, owed the Company approximately
$741,394, with an established reserve of $260,000. On April 26, 1996, the
dividend payable to Mr. Reynolds and his affiliates, in the amount of $435,124,
was applied against the net receivable. In addition, indebtedness was reduced by
payments received from affiliated parties. As of May 31, 1996, Mr. Reynolds and
parties affiliated with him owed the Company $292,068, with an established
reserve of $260,000.
As reported on the Company's Form 10-KSB/A Amendment No. 2 for the
fiscal year ended November 30, 1995, the Company received a secured, non
interest bearing Promissory Note (the "Note") in the principal amount of
$10,500,000 from Meritage Capital Corp. ("MCC") in September 1995 in exchange
for 1,500,000 Company Common Shares. The Note is secured by a Stock Pledge
Agreement covering all 1,500,000 shares. Beginning on the third anniversary of
the Note, MCC is required to make an annual payment of $1,312,500 for the next
eight years. On May 21, 1996, the Board of Directors, considering the
recommendation of the Compensation Committee, approved a transaction whereby
MCC's proceeds ($750,000) from the $.50 special cash dividend paid by the
Company on April 26, 1996, were used to make an early prepayment on the Note.
In exchange, among other things, the Note was amended so that the remaining
principal balance of $9,750,000 will be paid in six annual installments of
$1,625,000 beginning upon the fifth anniversary of the Note. The board
considered, among other things, the fact that the early prepayment (i) places
the Company in a position to immediately utilize $750,000 for capital
expenditures projects that will positively impact the Company's earnings, (ii)
places the Company in a position to immediately realize a return on a $750,000
asset that otherwise would not be realized for approximately 28 months, and
(iii) increases shareholders' equity by $750,000. The Note has a net present
value of $5,152,662 (using a discount rate of 11%).
10
<PAGE> 11
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As reported on the Company's Annual Report on Form 10-KSB/A Amendment
No. 2 for the fiscal year ended November 30, 1995, the Company and its
directors as of January 10, 1995 were named in a derivative lawsuit filed by 13
of the Company's shareholders (including MCC, now the Company's majority
shareholder). (Case No. 95-0103-CZ, Kent County Circuit Court, Leiber, J.) The
Complaint asserted that the former Board of Directors and Management, and in
particular the former President, Donald W. Reynolds, breached various fiduciary
duties. The Complaint sought, among other things, repayment of indebtedness by
certain directors, termination of a management agreement with an outside
company owned by Mr. Reynolds, and injunctive relief to prevent the transfer of
certain Company assets.
On June 28, 1996, following the appointment of new management, the
Derivative Lawsuit was dismissed without prejudice by the Court upon motion by
the 13 shareholders who instituted the proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
The 1996 Annual Meeting of Shareholders was held at the Thomas Edison
Inn, 500 Thomas Edison Parkway, Port Huron, Michigan at 10:00 a.m. on Tuesday,
May 21, 1996, in accordance with the Company's Bylaws. The Company solicited
proxies for the matters brought before the shareholders. The Company filed a
definitive proxy statement with the Securities and Exchange Commission ("SEC")
on April 19, 1996. 1,952,494 Common Shares were present in person or by proxy at
the meeting, representing 64.6% of the total shares outstanding.
All ten members of the Company's Board of Directors were up for
election. The Directors, pursuant to the Company's Bylaws, are divided into two
classes: five Class I Directors to serve until the 1997 Annual Meeting and five
Class II Directors to serve until the 1998 Annual Meeting. Christopher B.
Hewett, David S. Lundeen, Joseph L. Maggini, Robert E. Schermer, Jr. and Robert
E. Schermer, Sr. were nominated and elected as the Class I Directors. For each
of the Class I Directors, 1,949,894 shares were cast in favor and 2,100 shares
were withheld.
William F. Ehinger, James R. Goerlich, Joseph P. Michael, Frank O.
Staiger and Raymond A. Weigel, III were nominated and elected as Class II
Directors. Pursuant to the Company's Bylaws, only 599,902 shares were eligible
to vote for the Class II Directors. 397,194 shares were cast in favor of Mr.
Ehinger and 5,300 shares were withheld. 398,194 shares were cast in favor of Mr.
Goerlich and 4,300 shares were withheld. 398,594 shares were cast in favor of
Mr. Michael and 3,900 shares were withheld. 398,194 shares were cast in favor of
Mr. Staiger and 4,300 shares were withheld. 398,198 shares were cast in favor of
Mr. Weigel and 4,305 shares were withheld.
The shareholders approved an amendment to the Company's Articles of
Incorporation changing the Company's name from "Thomas Edison Inns, Inc." to
"Meritage Hospitality Group Inc." The following are the results of the shares
that voted: In Favor: 1,923,209; Opposed: 22,225; Abstention: 1,160; Broker
Non-Votes: 5,900.
The shareholders adopted the 1996 Management Equity Incentive Plan as
fully set forth in the proxy statement filed with the SEC on April 19, 1996. The
following are the results of the shares that voted: In Favor: 1,729,087;
Opposed: 18,740; Abstention: 5,230; Broker Non-Votes: 199,437.
11
<PAGE> 12
The shareholders adopted the 1996 Directors' Share Option Plan as fully
set forth in the proxy statement filed with the SEC on April 19, 1996. The
following are the results of the shares that voted: In Favor: 1,712,337;
Opposed: 23,415; Abstention: 17,305; Broker Non-Votes: 199,437.
The shareholders adopted the Directors' Compensation Plan as fully set
forth in the proxy statement filed with the SEC on April 19, 1996. The following
are the results of the shares that voted: In Favor: 1,906,374; Opposed: 29,965;
Abstention: 16,155; Broker Non-Votes: 0.
The shareholders adopted the Employee Share Purchase Plan as fully set
forth in the proxy statement filed with the SEC on April 19, 1996. The following
are the results of the shares that voted: In Favor: 1,732,892; Opposed: 6,455;
Abstention: 19,610; Broker Non-Votes: 193,537.
The shareholders ratified the appointment of Grant Thornton LLP as the
independent public accountants for the Company for fiscal year 1996. The
following are the results of the shares that voted: In Favor: 1,941,074;
Opposed: 1,400; Abstention: 10,020; Broker Non-Votes: 0.
ITEM 5. OTHER INFORMATION.
On April 16, 1996, the Board of Directors amended Article II of the
Company's Bylaws by providing for an advance notice procedure for the nomination
of persons to the Board or Directors and for bringing proposals before the
shareholders. Among other things, shareholders are required to provide the
Secretary of the Company with at least sixty (60) days' notice to nominate an
individual to the Board of Directors or to bring business before the
shareholders at an Annual Shareholders' Meeting. See Article II, ss.14 of the
Bylaws which are attached as Exhibit 3(ii).
On May 21, 1996, the Board of Directors reappointed the existing
officers of the Company to the position or positions they previously held:
Christopher B. Hewett - President and Chief Executive Officer; Robert E.
Schermer, Jr. - Executive Vice President & Treasurer; Gerard Belisle, Jr. -
Senior Vice President; and James R. Saalfeld - Vice President, General Counsel &
Secretary. The board also reestablished the Executive Committee, Audit Committee
and Compensation Committee as standing committees of the Board of Directors and
the Stock Purchase Agreement Committee as a special committee of the Board of
Directors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBIT LIST.
Exhibit No. Description of Document
- ---------- -------------------------------------------------------------
3(i) Articles of Incorporation of Meritage Hospitality Group Inc.
3(ii) Restated and Amended Bylaws of Meritage Hospitality Group
Inc.
10(a) First Amended and Restated Secured Promissory Note.
10(b) Amended and Restated Stock Pledge Agreement.
27 Financial Data Schedule.
(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed
during the quarter for which this report is filed.
12
<PAGE> 13
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MERITAGE HOSPITALITY GROUP INC.
Dated: July 15, 1996 By /s/ Christopher B. Hewett
----------------------------------------
Christopher B. Hewett
President and Chief Executive Officer
By /s/ Robert E. Schermer, Jr.
----------------------------------------
Robert E. Schermer, Jr.
Executive Vice President and Treasurer
(Chief Financial Officer)
13
<PAGE> 14
EXHIBIT INDEX
Exhibit No. Description of Document
- ---------- ---------------------------------------------------------------
3(i) Articles of Incorporation of Meritage Hospitality Group Inc.
3(ii) Restated and Amended Bylaws of Meritage Hospitality Group Inc.
10(a) First Amended and Restated Secured Promissory Note.
10(b) Amended and Restated Stock Pledge Agreement.
27 Financial Data Schedule.
14
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Exhibit 3(i)
MERITAGE HOSPITALITY GROUP INC.
ARTICLES OF INCORPORATION
ARTICLE I
The name of the corporation is Meritage Hospitality Group Inc.
ARTICLE II
The purpose or purposes for which the corporation is organized is to engage in
any activity within the purposes for which corporations may be organized under
the Business Corporation Act of Michigan.
ARTICLE III
The total authorized capital stock is:
Common Shares: 30,000,000 Par Value Per Share $0.01
1.
Preferred Shares: 5,000,000 Par Value Per Share $0.01
and/or shares without par value as follows:
Common Shares 0 Stated Value Per Share $0
2.
Preferred Shares 0 Stated Value Per Share $0
3. A statement of all or any of the relative rights, preferences and
limitations of the shares of each class is as follows: Authority is hereby
expressly reserved and granted to the Board of Directors of this Corporation to
determine in the resolution or resolutions providing for the issuance of Common
Stock and/or Preferred Stock the voting powers, designations, preferences and
relative participating, operational or other special rights, qualifications,
limitations or restrictions thereof which shall be incident to the ownership of
shares of such Common Stock and Preferred Stock.
ARTICLE IV
1. The address of the registered office is:
40 Pearl Street, N.W., Suite 900
Grand Rapids, Michigan 49503
2. The mailing address of the registered office if different than above:
(same)
3. The name of the resident agent at the registered office is: Christopher
B. Hewett
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ARTICLE V
The name and address of the incorporator is as follows:
Donald W. Reynolds
940 W. Savidge
Spring Lake, MI 49456
ARTICLE VI
When a compromise or arrangement or a plan of reorganization of this
corporation is proposed between this corporation and its creditors or any class
of them or between this corporation and its shareholders or any class of them,
a court of equity jurisdiction within the state, on application of this
corporation or of a creditor or shareholder thereof, or on application of a
receiver appointed for the corporation, may order a meeting of the creditors or
class of creditors or of the shareholders or class of shareholders to be
affected by the proposed compromise or arrangement or reorganization, to be
summoned in such manner as the court directs. If a majority in number
representing 3/4 in value of the creditors or class of creditors, or of the
shareholders or class of shareholders to be affected by the proposed compromise
or arrangement or a reorganization, agree to a compromise or arrangement or a
reorganization of this corporation as a consequence of the compromise or
arrangement, the compromise or arrangement and the reorganization, if
sanctioned by the court to which the application has been made, shall be
binding on all the creditors or class of creditors, or on all the shareholders
or class of shareholders and also on this corporation.
ARTICLE VII
Any action required or permitted by the Act to be taken at an annual or special
meeting of shareholders may be taken without a meeting, without prior notice
and without a vote, if a consent in writing, setting forth the action so taken,
is signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take the action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to shareholders who have not
consented in writing.
ARTICLE VIII
The Corporation shall be, and is hereby declared to be, subject to the
provisions of Chapter 7a of the Business Corporation Act of the State of
Michigan, as enacted through the adoption of Act No. 115 of the Public Acts of
the State of Michigan of 1984. The requirements therein provided and made
applicable with respect to the Corporation shall be in addition to all other
requirements of law and other provision of the Articles of Incorporation, or
any thereto.
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MERITAGE HOSPITALITY GROUP INC.
CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION
1. The present name of the corporation is: Thomas Edison Inns, Inc.
2. The corporation identification number (CID) assigned by the Bureau is:
304-905
3. The location of its registered office is 40 Pearl Street, N.W., Suite 900
Grand Rapids, MI 49503
4. Article I of the Articles of Incorporation is hereby amended to read
as follows:
The name of the corporation is Meritage Hospitality Group Inc.
5. The foregoing amendment to the Articles of Incorporation was duly adopted
on May 21, 1996, to be effective for all purposes on May 21, 1996. The
amendment was duly adopted in accordance with Section 611(2) of the Act by
the vote of the shareholders. The necessary votes were cast in favor of
the amendment.
Signed this 21st day of May, 1996
By: /s/ Christopher B. Hewett
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Christopher B. Hewett, President
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Exhibit 3(ii)
RESTATED AND AMENDED
BYLAWS
OF
MERITAGE HOSPITALITY GROUP INC.
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office shall be in the
City of Grand Rapids, County of Kent, State of Michigan.
SECTION 2. OTHER OFFICES. The corporation may also have offices at
such other places both within and without the State of Michigan as the board of
directors may from time to time determine or the business of the corporation
may require.
ARTICLE II
SHAREHOLDERS
SECTION 1. PLACE OF MEETING. All meetings of the shareholders of this
corporation shall be held at the registered office or such other place, either
within or without the State of Michigan, as may be determined from time to time
by the board of directors.
SECTION 2. ANNUAL MEETING OF SHAREHOLDERS. The annual meeting of
shareholders for election of directors and for such other business as may
properly come before the meeting, commencing with the year 1987, shall be held
on the third Tuesday of May, if not a legal holiday, and if a legal holiday,
then on the next business day following, at 10:00 am., local time, or at such
other date and time as shall be determined from time to time by the board of
directors, unless such action is taken by written consent as provided in
Article II, Section 12 of these bylaws. If the annual meeting is not held on
the date designated therefor, the board shall cause the meeting to be held as
soon thereafter as convenient.
SECTION 3. ORDER OF BUSINESS AT ANNUAL MEETING. The order of business
at the annual meeting of the shareholders shall be as follows:
(a) Reading of notice and proof of mailing,
(b) Reports of Officers,
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(c) Election of Directors,
(d) Transaction of other business mentioned in the
notice,
(e) Adjournment,
provided that, in the absence of any objection, the presiding officer may vary
the order of business at his discretion.
SECTION 4. NOTICE OF MEETING OF SHAREHOLDERS. Except as otherwise
provided in the Michigan Business Corporation Act (herein called the "Act"),
written notice of the time, place, and purpose of a meeting of shareholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting, either personally or by mail, to each shareholder of
record entitled to vote at the meeting. When a meeting is adjourned to another
time or place, it is not necessary to give notice of the adjourned meeting if
the time and place to which the meeting is adjourned are announced at the
meeting at which the adjournment is taken and at the adjourned meeting only
such business is transacted as might have been transacted at the original
meeting. However, if after the adjournment the board of directors fix a new
record date for the adjourned meeting, a notice of the adjourned meeting shall
be given to each shareholder of record on the new record date entitled to vote
at the meeting.
SECTION 5. LIST OF SHAREHOLDERS ENTITLED TO VOTE. The officer or
agent having charge of the stock transfer books for shares of the corporation
shall make and certify a complete list of the shareholders entitled to vote at
a shareholders' meeting or any adjournment thereof. The list shall:
(a) Be arranged alphabetically within each class and
series, with the address of, and the number of shares held by, each
shareholder.
(b) Be produced at the time and place of the meeting.
(c) Be subject to inspection by any shareholder during
the whole time of the meeting.
(d) Be prima facie evidence as to who are the
shareholders entitled to examine the list or to vote at the meeting.
SECTION 6. SPECIAL MEETING OF SHAREHOLDERS. A special meeting of
shareholders may be called at any time by the chief executive officer of the
corporation (See Article V, Section 4) or by a majority of the members of the
board of directors then in office, or by shareholders owning, in the aggregate,
not less than ten percent (10%) of all the shares entitled to vote at such
special meeting. The method by which such meeting may be called is as follows:
Upon receipt of a specification in writing setting forth the date and objects
of such proposed special meeting, signed by the chief executive officer, or by
a majority of the members of the board of directors then in office, or by
shareholders as above provided, the secretary of this corporation shall
prepare, sign, and mail the notices requisite to such meeting.
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SECTION 7. QUORUM OF SHAREHOLDERS. Unless a greater or lesser quorum
is provided in the articles of incorporation, in a bylaw adopted by the
shareholders, or in the Act, shares entitled to cast a majority of the votes at
a meeting constitute a quorum at the meeting. The shareholders present in
person or by proxy at such meeting may continue to do business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave
less than a quorum. Whether or not a quorum is present, the meeting may be
adjourned by a vote of the shares present.
SECTION 8. VOTE OF SHAREHOLDERS. Each outstanding share is entitled
to one (1) vote on each matter submitted to a vote, unless otherwise provided
in the articles of incorporation. A vote may be cast either orally or in
writing. When an action, other than the election of directors, is to be taken
by vote of the shareholders, it shall be authorized by a majority of the votes
cast by the holders of shares entitled to vote thereon, unless a greater
plurality is required by the articles of incorporation or the Act. Directors
shall be elected by a plurality of the votes cast at an election.
SECTION 9. RECORD DATE FOR DETERMINATION OF SHAREHOLDERS. For the
purpose of determining shareholders entitled to notice of and to vote at a
meeting of shareholders or an adjournment thereof, or to express consent or to
dissent from a proposal without a meeting, or for the purpose of determining
shareholders entitled to receive payment of a dividend or allotment of a right,
or for the purpose of any other action, the board may fix, in advance, a date
as the record date for any such determination of shareholders. The date shall
not be more than sixty (60) nor less than ten (10) days before the date of the
meeting, nor more than sixty (60) days before any other action. If a record
date is not fixed (a) the record date for determination of shareholders
entitled to notice of or to vote at a meeting of shareholders shall be the
close of business on the day next preceding the day on which notice is given,
or, if no notice is given, the day next preceding the day on which the meeting
is held, and (b) the record date for determining shareholders for any purpose
other than that specified in subdivision (a) shall be the close of business on
the day on which the resolution of the board relating thereto is adopted. When
a determination of shareholders of record entitled to notice of or to vote at a
meeting of shareholders has been made as provided in this Section, the
determination applies to any adjournment of the meeting, unless the board fixes
a new record date under this Section for the adjourned meeting.
SECTION 10. PROXIES. A shareholder entitled to vote at a meeting of
shareholders or to express consent or dissent without a meeting may authorize
one or more other persons to act for him by proxy. A proxy shall be signed by
the shareholder or his authorized agent or representative. A proxy is not
valid after the expiration of three (3) years from its date unless otherwise
provided in the proxy.
SECTION 11. INSPECTORS OF ELECTION. The board of directors, in
advance of a shareholders' meeting, may appoint one (1) or more inspectors of
election to act at the meeting or any adjournment thereof. If inspectors are
not so appointed, the person presiding at a shareholders' meeting may, and on
request of a shareholder entitled to vote thereat shall, appoint one (1) or
more inspectors. In case a person appointed fails to appear or act, the
vacancy may be filled by appointment made by the board of directors in advance
of the meeting or at the meeting by the person presiding thereat. The
inspectors shall determine the number of shares outstanding and the voting
power of each, the shares represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes,
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ballots or consents, hear and determine challenges and questions arising in
connection with the right to vote, count and tabulate votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all shareholders. On request of the person
presiding at the meeting or a shareholder entitled to vote thereat, the
inspectors shall make and execute a written report to the person presiding at
the meeting of any of the facts found by them and matters determined by them.
The report is prima facie evidence of the facts stated and of the vote as
certified by the inspectors.
SECTION 12. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. The articles
of incorporation may provide that any action required or permitted by the Act
to be taken at an annual or special meeting of shareholders may be taken
without a meeting, without prior notice, and without a vote, if a consent in
writing, setting forth the action so taken, is signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take the action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking
of the corporate action without a meeting by less than unanimous written
consent shall be given to shareholders who have not consented in writing. Any
action required or permitted by the Act to be taken at an annual or special
meeting of shareholders may be taken without a meeting, without prior notice,
and without a vote, if all the shareholders entitled to vote thereon consent
thereto in writing.
SECTION 13. PARTICIPATION IN MEETING BY TELEPHONE. By oral or written
permission of a majority of the shareholders, a shareholder may participate in
a meeting of shareholders by conference telephone or similar communications
equipment by which all persons participating in the meeting mayhear each other
if all participants are advised of the communications equipment and the names
of the participants in the conference are divulged to all participants.
Participation in a meeting pursuant to this Section constitute presence in
person at the meeting.
SECTION 14. NOMINATIONS AND OTHER BUSINESS.
(a) ANNUAL MEETING OF SHAREHOLDERS. (1) Nominations of persons for
election to the Board of Directors of the corporation and proposals of business
to be considered by the shareholders may be made at an annual meeting of
shareholders (i) pursuant to the corporation's notice of meeting, (ii) by
or at the direction of the Board of Directors or (iii) by a shareholder of the
corporation who was a shareholder of record at the time of giving of notice
provided for in this bylaw, who is entitled to vote at the meeting and who
complies with the notice procedures set forth in this bylaw.
(2) For nominations or other business to be properly brought
before an annual meeting by a shareholder pursuant to clause (iii) of paragraph
(a) (1) of this bylaw, the shareholder must have given timely notice thereof in
writing to the Secretary of the corporation. To be timely, a shareholder's
notice shall be delivered to the Secretary at the principal executive offices
of the corporation not less than 60 days prior to the annual meeting. Such
shareholder's notice shall set forth (i) as to each person whom the shareholder
proposes to nominate for election or reelection as a director, all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (including such person's written consent to being
named in the proxy statement as a nominee and to serving as a director if
elected); (ii) as to any
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other business that the shareholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting, and any material interest
in such business of such shareholder and the beneficial owner, if any, on whose
behalf the proposal is made; (iii) as to the shareholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is
made (A) the name and address of such shareholder, as it appears on the
corporation's books, and of such beneficial owner, and (B) the class and number
of shares of the corporation owned beneficially and of record by such
shareholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of
paragraph (a) (2) of this bylaw to the contrary, if the number of directors to
be elected to the Board of Directors of the corporation is increased and there
is no public announcement naming all of the nominees for director or specifying
the size of the increased Board of Directors made by the corporation at least 70
days prior to the annual meeting, a shareholder's notice required by this bylaw
shall also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary at
the principal executive offices of the corporation not later than the close of
business on the 10th day following the day on which such public announcement is
first made by the corporation.
(b) SPECIAL MEETINGS OF SHAREHOLDERS. Only such business shall be
conducted at a special meeting of shareholders as shall have been brought
before the meeting pursuant to the corporation's notice of meeting.
Nominations of persons for election to the Board of Directors may be made at a
special meeting of shareholders at which directors are to be elected pursuant
to the corporation's notice of meeting (i) by or at the direction of the Board
of Directors or (ii) by any shareholder of the corporation who is a shareholder
of record at the time of giving of notice provided for in this bylaw, who shall
be entitled to vote at the meeting and who complies with the notice procedures
set forth in this bylaw. Nominations by shareholders of persons for election
to the Board of Directors may be made at such a special meeting of shareholders
if the shareholder's notice required by paragraph (a) (2) of this bylaw shall
be delivered to the Secretary at the principal executive offices of the
corporation not later than the close of business on the later of the 60th day
prior to such special meeting or the10th day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting.
(c) GENERAL. (1) Only such persons who are nominated in
accordance with the procedures set forth in this bylaw shall be eligible to
serve as directors and only such shareholder proposals shall be considered at a
meeting of shareholders as shall have been brought before the meeting in
accordance with the procedures set forth in this bylaw. The chairman of the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made in accordance with
the procedures set forth in this bylaw and, if any proposed nomination or
business is not in compliance with this bylaw, to declare that such defective
proposal shall be disregarded.
(2) For purposes of this bylaw, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national new service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant
to Sections 13, 14, or 15(d) of the Exchange Act.
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(3) Notwithstanding the foregoing provisions of this bylaw, a
shareholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this bylaw. Nothing in this bylaw shall be deemed to affect any
rights of a shareholder to request inclusion of proposals in the corporation's
proxy statement pursuant to Rule 14a-8 of the Exchange Act.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM. (a) The business and affairs of the
corporation shall be managed by a Board of Directors comprised of not less than
10 directors. The directors shall be divided into two classes, as nearly equal
in number as possible. By majority vote of the directors comprising each of
the Class I and Class II directors, the number of directors on the Board may be
increased to any number greater than 10. A director shall hold office until
his or her successor has been duly elected and qualified.
(b) Christopher B. Hewett, David S. Lundeen, Joseph L. Maggini,
Robert E. Schermer, Sr., and Robert E. Schermer, Jr. shall be the initial Class
I directors. The initial Class I directors shall take office on January 25,
1996, and shall serve until the 1996 annual meeting of shareholders. The term
of office of the Class I directors elected as such at the 1996 annual meeting
of shareholders shall expire at the 1997 annual meeting of shareholders. The
term of office of the Class I directors elected as such at the 1997 annual
meeting of share- holders and thereafter shall expire at the second annual
meeting of shareholders following their election.
(c) The incumbent directors as of January 25, 1996 (i.e., Rebecca L.
Awtrey, William F. Ehinger, Joseph L. Michael, Frank O. Staiger, Jr., and
Raymond A. Weigel, III) shall be the initial Class II directors. The initial
Class II directors shall serve until the 1996 annual meeting of shareholders.
The term of office of the Class II directors elected as such at the 1996 annual
meeting of shareholders and thereafter shall expire at the second annual
meeting of shareholders following their election.
(d) Prior to the 1998 annual meeting of shareholders, Meritage
Hospitality Group Incorporated ("Meritage") shall have the right to vote the
shares of the corporation's stock that Meritage owns as of January 25, 1996
(the "Meritage Block") (i) for the election or removal of Class II directors,
and (ii) for the amendment of this Section 1, only if the corporation
determines (or a court of competent jurisdiction orders) that the corporation's
stock acquired by TEI Acquisition, Inc. directly and indirectly from Donald W.
Reynolds (the "TAI Block") has voting power, or with the consent of a majority
of the Class II directors. There is no limitation on the voting rights or
voting power of the stock in the Meritage Block except as expressly set forth
in the immediately preceding sentence of this subsection (d), and in Article
III, Section 3 of these bylaws. Further, the Meritage Block shall have the
right and power to vote for the election or removal of Class II directors and
for the amendment of this Section 1 at the 1998
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annual meeting of shareholders and at all times thereafter. If for any reason
an annual meeting of shareholders does not occur in 1998, all voting
limitations applicable to the Meritage Block contained in these bylaws in any
event shall become null and void on December 31, 1998. There is no limitation
on the voting rights or voting power of any stock with respect to which
Meritage acquires ownership or voting power after January 25, 1996.
(e) Prior to the 1998 annual meeting of shareholders, this Section 1
may be amended only (i) with the approval of a majority of each of the Class I
directors and Class II directors, or (ii) by the holders of a majority of the
shares entitled to vote at an election of directors (subject to the limitation
applicable to the Meritage Block set forth in subsection (d) of this Section
1); provided, however, that prior to the 1998 annual meeting of shareholders,
this Section 1 may be amended in the same manner that any other provision of
these bylaws may be amended if the amendment is to become effective on or after
the date of the 1998 annual meeting of shareholders. On and after the date of
the 1998 annual meeting of shareholders (and in any event after December 31,
1998), this Section 1 may be amended in the same manner that any other
provision of these bylaws may be amended.
(f) The last sentence of Article IX, Section 1 of these bylaws shall
not be applicable to this Section 1.
SECTION 2. VACANCIES. A position occurring in the board resulting
from a vacancy may be filled by affirmative vote of a majority of the remaining
directors in the class in which the vacancy occurs, though less than a quorum
of the board. A position occurring in the board resulting from an increase in
the number of directors may be filled by affirmative vote of a majority of each
class of directors. Any person who becomes a director pursuant to this Section
2 shall serve for a term of office continuing until the annual meeting of
shareholders at which the term of office of the class of directors to which
such person was elected expires. If because of death, resignation, removal or
other cause, the corporation has no directors in office, an officer, a
shareholder, an executor, administrator, trustee or guardian of the person or
estate of a shareholder, may call a special meeting of shareholders in
accordance with the articles of incorporation or these bylaws.
SECTION 3. REMOVAL. A director or the entire board may be removed at
any time, with or without cause, by vote of the holders of a majority of the
shares entitled to vote at an election of directors; provided, however, that
prior to the 1998 annual meeting of shareholders, the Meritage Block may be
voted on the question of removing Class II directors only if the corporation
determines (or a court of competent jurisdiction orders) that the TAI Block has
the right to vote on such question. If for any reason an annual meeting of
shareholders does not occur in 1998, all voting limitations applicable to the
Meritage Block contained in these bylaws in any event shall become null and
void on December 31, 1998.
SECTION 4. RESIGNATION. A director may resign by written notice to
the corporation. The resignation is effective upon its receipt by the
corporation or a subsequent time as set forth in the notice of resignation.
SECTION 5. POWERS. The business and affairs of the corporation shall
be managed by its board of directors except as otherwise provided in the Act or
in the articles of incorporation.
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SECTION 6. LOCATION OF MEETINGS. Regular or special meetings of the
board of directors may be held either within or without the State of Michigan.
SECTION 7. ORGANIZATION MEETING OF BOARD. The first meeting of each
newly elected board of directors shall be held at the place of holding the
annual meeting of shareholders, and immediately following the same, for the
purpose of electing officers and transacting any other business properly
brought before it, provided that the organization meeting in any year may be
held at a different time and place than that herein provided by a consent of a
majority of the directors of such new board. No notice of such meeting shall
be necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present, unless said meeting is not held at
the place of holding and immediately following the annual meeting of
shareholders.
SECTION 8. REGULAR MEETING OF BOARD. Regular meetings of the board of
directors may be held without notice at such time and at such place as shall
from time to time be determined by the board.
SECTION 9. SPECIAL MEETING OF BOARD. Special meetings of the board of
directors may be called by the chief executive officer, or by a majority of the
persons then comprising the board of directors, at any time by means of notice
of the time and place thereof to each director, given not less than twenty-four
(24) hours before the time such special meeting is to be held.
SECTION 10. COMMITTEES OF DIRECTORS. The board of directors may
designate one (1) or more committees, each committee to consist of one or more
of the directors of the corporation. The board may designate one or more
directors as alternate members of any committee, who may replace an absent or
disqualified member at a meeting of the committee. In the absence or
disqualification of a member of a committee, the members thereof present at a
meeting and not disqualified from voting, whether or not they constitute a
quorum, may unanimously appoint another member of the board of directors to act
at the meeting in the place of any such absent or disqualified member. Any
such committee, to the extent provided in the resolution of the board of
directors creating such committee, may exercise all the powers and authority of
the board of directors in the management of the business and affairs of the
corporation. However, such a committee does not have the power or authority to
amend the articles of incorporation, adopt an agreement of merger or
consolidation, recommend to the shareholders the sale, lease, or exchange of
all or substantially all of the corporation's property and assets, recommend to
the shareholders a dissolution of the corporation or a revocation of a
dissolution, amend the bylaws of the corporation, fill vacancies in the board
of directors, or fix compensation of the directors serving on the board or on a
committee; and, unless the resolution of the board of directors creating such
committee or the articles of incorporation expressly so provides, such a
committee does not have the power or authority to declare a dividend or to
authorize the issuance of stock. Any such committee, and each member thereof,
shall serve at the pleasure of the board of directors.
SECTION 11. QUORUM AND REQUIRED VOTE OF BOARD AND COMMITTEES. At all
meetings of the board of directors, or of a committee thereof, a majority of
the members of the board then in office, or of the members of a committee
thereof, constitutes a quorum for transaction of business. The vote of the
majority of members present at a meeting at which a quorum is present
constitutes the action of the board or of the committee unless the vote of a
larger number is required by the Act. Amendment of these bylaws by the board
requires the vote of not less than a majority of the members of the board
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then in office. If a quorum shall not be present at any meeting of the board
of directors, the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
shall be present.
SECTION 12. ACTION BY WRITTEN CONSENT. Action required or permitted
to be taken pursuant to authorization voted at a meeting of the board of
directors or a committee thereof, may be taken without a meeting if, before or
after the action, all members of the board or of the committee consent thereto
in writing. The written consents shall be filed with the minutes of the
proceedings of the board or committee. The consent has the same effect as a
vote of the board or committee for all purposes.
SECTION 13. COMPENSATION OF DIRECTORS. The board of directors, by
affirmative vote of a majority of directors in office and irrespective of any
personal interest of any of them, may establish reasonable compensation of
directors for services to the corporation as directors or officers, but
approval of the shareholders is required if the articles of incorporation,
these bylaws or any provisions of the Act so provide.
SECTION 14. PARTICIPATION IN MEETING BY TELEPHONE. By oral or written
permission of a majority of the board of directors, a member of the board of
directors or of a committee designated by the board may participate in a
meeting by means of conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other.
Participation in a meeting pursuant to this Section constitutes presence in
person at the meeting.
ARTICLE IV
NOTICES
SECTION 1. NOTICE. Whenever any notice or communication is required
to be given by mail to any director or shareholder under any provision of the
Act, or of the articles of incorporation or of these bylaws, it shall be given
in writing, except as otherwise provided in the Act, to such director or
shareholder at the address designated by him for that purpose or, if none is
designated, at his last known address. The notice or communication is given
when deposited, with postage thereon prepaid, in a post office or official
depository under the exclusive care and custody of the United States postal
service. The mailing shall be registered, certified, or other first class mail
except where otherwise provided in the Act. Written notice may also be given
in person or by telegram, telex, radiogram, cablegram, or mailgram, and such
notice shall be deemed to be given when the recipient receives the notice
personally, or when the notice, addressed as provided above, has been delivered
to the company, or to the equipment transmitting such notice. Neither the
business to be transacted at, nor the purpose of, a regular or special meeting
of the board of directors need be specified in the notice of the meeting.
SECTION 2. WAIVER OF NOTICE. When, under the Act or the articles of
incorporation or these bylaws, or by the terms of an agreement or instrument, a
corporation or the board or any committee thereof may take action after notice
to any person or after lapse of a prescribed period of time, the action may be
taken without notice and without lapse of the period of time, if at any time
before or
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<PAGE> 10
after the action is completed the person entitled to notice or to participate
in the action to be taken or, in case of a shareholder, by his
attorney-in-fact, submits a signed waiver of such requirements. Neither the
business to be transacted at, nor the purpose of, a regular or special meeting
of the board of directors need be specified in the waiver of notice of the
meeting. Attendance of a person at a meeting of shareholders, in person or by
proxy, or of a director at a meeting constitutes a waiver of notice of such
meeting, except when the person or director attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of
any business because the meeting is not lawfully called or convened.
ARTICLE V
OFFICERS
SECTION 1. SELECTION. The board of directors, at its first meeting
and at each meeting following the annual meeting of shareholders, shall elect
or appoint a president, a secretary, and a treasurer. The board of directors
may also elect or appoint a chairman of the board, one (1) or more vice
presidents and such other officers, employees, and agents as it shall deem
necessary who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
board. Two (2) or more offices may be held by the same person but an officer
shall not execute, acknowledge, or verify an instrument in more than one (1)
capacity.
SECTION 2. COMPENSATION. The salaries of all officers, employees, and
agents of the corporation shall be fixed by the board of directors; provided,
however, that the board may delegate to the officers the fixing of compensation
of assistant officers, employees, and agents.
SECTION 3. TERM, REMOVAL, AND VACANCIES. Each officer of the
corporation shall hold office for the term for which he is elected or appointed
and until his successor is elected or appointed and qualified, or until his
resignation or removal. An officer elected or appointed by the board of
directors may be removed by the board with or without cause at any time. An
officer may resign by written notice to the corporation. The resignation is
effective upon its receipt by the corporation or at a subsequent time specified
in the notice of resignation. Any vacancy occurring in any office of the
corporation shall be filled by the board of directors.
SECTION 4. CHIEF EXECUTIVE OFFICER. At the first meeting of each
newly-elected board of directors, the board shall designate the chairman of the
board or president as the chief executive officer of the corporation; provided,
however, that if a motion is not made and carried to change the designation,
the designation shall be the same as the designation for the preceding year;
provided, further, that the designation of the chief executive officer may be
changed at any special meeting of the board of directors. The president shall
be the chief executive officer whenever the office of chairman of the board is
vacant. The chief executive officer shall be responsible to the board of
directors for the general supervision and management of the business and
affairs of the corporation and shall see that all orders and resolutions of the
board are carried into effect. The chairman of the board or president who is
not the chief executive officer shall be subject to the authority of the chief
executive officer, but shall exercise all of the powers and discharge all of
the duties of the chief executive officer, during the
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<PAGE> 11
absence or disability of the chief executive officer.
SECTION 5. CHAIRMAN OF THE BOARD OF DIRECTORS. If the board of
directors elects or appoints a chairman of the board, he shall be elected or
appointed by, and from among, the membership of, the board of directors. He
shall preside at all meetings of the shareholders, of the board of directors
and of any executive committee. He shall perform such other duties and
functions as shall be assigned to him from time to time by the board of
directors. He shall be, ex officio, a member of all standing committees.
Except where by law the signature of the president of the corporation is
required, the chairman of the board of directors shall possess the same power
and authority to sign all certificates, contracts, instruments, papers, and
documents of every conceivable kind and character whatsoever in the name of and
on behalf of the corporation which may be authorized by the board of directors.
During the absence or disability of the president, or while that office is
vacant, the chairman of the board of directors shall exercise all of the powers
and discharge all of the duties of the president.
SECTION 6. PRESIDENT. The president shall be elected or appointed by,
and from among the membership of, the board of directors. During the absence
or disability of the chairman of the board, or while that office is vacant, the
president shall preside over all meetings of the board of directors, of the
shareholders and of any executive committee, and shall perform all of the
duties and functions, and when so acting shall have all powers and authority,
of the chairman of the board. He shall be, ex officio, a member of all
standing committees. The president shall, in general, perform all duties
incident to the office of president and such other duties as may be prescribed
by the board of directors.
SECTION 7. VICE PRESIDENTS. The board of directors may elect or
appoint one or more vice presidents. The board of directors may designate one
or more vice presidents as executive or senior vice presidents. Unless the
board of directors shall otherwise provide by resolution duly adopted by it,
such of the vice presidents as shall have been designated executive or senior
vice presidents and are members of the board of directors in the order
specified by the board of directors (or if no vice president who is a member of
the board of directors shall have been designated as executive or senior vice
president, then such vice presidents as are members of the board of directors
in the order specified by the board of directors) shall perform the duties and
exercise the powers of the president during the absence or disability of the
president. The vice presidents shall perform such other duties as may be
delegated to them by the board of directors, any executive committee, or the
president.
SECTION 8. SECRETARY. The secretary shall attend all meetings of the
stockholders, and of the board of directors and of any executive committee, and
shall preserve in the books of the corporation true minutes of the proceedings
of all such meetings. He shall safely keep in his custody the seal of the
corporation and shall have authority to affix the same to all instruments where
its use is required or permitted. He shall give all notice required by the
Act, these bylaws or resolution. He shall perform such other duties as may be
delegated to him by the board of directors, any executive committee, or the
president.
SECTION 9. TREASURER. The treasurer shall have custody of all
corporate funds and securities and shall keep in books belonging to the
corporation full and accurate accounts of all receipts and disbursements; he
shall deposit all moneys, securities, and other valuable effects in the name of
the corporation in such depositories as may be designated for that purpose by
the board of directors. He
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<PAGE> 12
shall disburse the funds of the corporation as may be ordered by the board of
directors, taking proper vouchers for such disbursements, and shall render to
the president and the board of directors whenever requested an account of all
his transactions as treasurer and of the financial condition of the
corporation. If required by the board of directors he shall keep in force a
bond in form, amount, and with a surety or sureties satisfactory to the board
of directors, conditioned for faithful performance of the duties of his office,
and for restoration to the corporation in case of his death, resignation,
retirement, or removal from office, of all books, papers, vouchers, money, and
property of whatever kind in his possession or under his control belonging to
the corporation. He shall perform such other duties as may be delegated to him
by the board of directors, any executive committee, or the president.
SECTION 10. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The
assistant secretary or assistant secretaries, in the absence or disability of
the secretary, shall perform the duties and exercise the powers of the
secretary. The assistant treasurer or assistant treasurers, in the absence or
disability of the treasurer, shall perform the duties and exercise the powers
of the treasurer. Any assistant treasurer, if required by the board of
directors, shall keep in force a bond as provided in Section 9, Article V. The
assistant secretaries and assistant treasurers, in general, shall perform such
duties as shall be assigned to them by the secretary or by the treasurer,
respectively, or by the board of directors, any executive committee, or the
president.
SECTION 11. DELEGATION OF AUTHORITY AND DUTIES BY BOARD OF DIRECTORS.
All officers, employees, and agents shall, in addition to the authority
conferred, or duties imposed, on them by these bylaws, have such authority and
perform such duties in the management of the corporation as may be determined
by resolution of the board of directors not inconsistent with these bylaws.
ARTICLE VI
INDEMNIFICATION
SECTION 1. THIRD PARTY ACTIONS. The corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise,
against expenses (including attorneys' fees), judgments, fines, and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation or its shareholders, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit, or proceeding by judgment, order, settlement,
conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation or its shareholders, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
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<PAGE> 13
SECTION 2. ACTIONS IN THE RIGHT OF THE CORPORATION. The corporation
shall indemnify any person who was or is a party to or is threatened to be made
a party to any threatened, pending, or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee, or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation or its shareholders and except that no indemnification shall be
made in respect of any claim, issue, or matter as to which such person shall
have been adjudged to be liable for negligence or misconduct in the performance
of his duty to the corporation unless and only to the extent that the court in
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses which such court shall deem proper.
SECTION 3. MANDATORY AND PERMISSIVE PAYMENTS.
(a) To the extent that a director, officer, employee, or
agent of a corporation has been successful on the merits or otherwise
in defense of any action, suit, or proceeding referred to in Sections
1 or 2 of this Article VI, or in defense of any claim, issue, or
matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
(b) Any indemnification under Sections 1 or 2 of this
Article VI (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee,
or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Sections 1 and 2 of this
Article VI. Such determination shall be made in either of the
following ways:
(1) By the board of a majority vote of a quorum
consisting of directors who were not parties to such action,
suit, or proceeding.
(2) If such quorum is not obtainable, or, even if
obtainable, a quorum of disinterested directors, so directs,
by independent legal counsel who may be the regular counsel of
the corporation in a written opinion.
(3) By the shareholders.
SECTION 4. EXPENSE ADVANCES. Expenses incurred in defending a civil
or criminal action, suit, or proceeding described in Sections 1 or 2 of this
Article VI may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding as authorized in the manner provided in
subsection (b) of Section 3 of this Article VI upon receipt of an undertaking
by or on behalf of the director, officer, employee, or agent to repay such
amount unless it shall ultimately be determined that
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<PAGE> 14
he is entitled to be indemnified by the corporation.
SECTION 5. VALIDITY OF PROVISIONS. A provision made to indemnify
directors or officers of any action, suit, or proceeding referred to in
Sections 1 or 2 of this Article VI whether contained in the articles of
incorporation, these bylaws, a resolution of shareholders or directors, an
agreement or otherwise, shall be invalid only insofar as it is in conflict with
Sections 1 to 5 of this Article VI. Nothing contained in Sections 1 to 5 of
this Article VI shall affect any rights to indemnification to which persons
other than directors and officers may be entitled by contract or otherwise by
law. The indemnification provided in Sections 1 to 5 of this Article VI
continues as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors, and
administrators of such person.
SECTION 6. INSURANCE. The corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee,
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise against any liability
asserted against him and incurred by him in any such capacity or arising out of
his status as such, whether or not the corporation would have power to
indemnify him against such liability under Sections 1 to 5 of this Article VI.
SECTION 7. CONSTITUENT CORPORATION. For the purposes of this Article
VI, references to the corporation include all constituent corporations absorbed
in a consolidation or merger and the resulting or surviving corporation, so
that a person who is or was a director, officer, employee, or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise shall stand
in the same position under the provisions of this Article VI with respect to
the resulting or surviving corporation as he would if he had served the
resulting or surviving corporation in the same capacity.
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<PAGE> 15
ARTICLE VII
STOCK AND TRANSFERS
SECTION 1. SHARE CERTIFICATES: REQUIRED SIGNATURES. The shares of
the corporation shall be represented by certificates signed by the chairman of
the board of directors, vice chairman of the board of directors, president or a
vice president and which also may be signed by another officer of the
corporation. The certificates may be sealed with the seal of the corporation
or a facsimile of the seal. The signatures of the officers may be facsimiles
if the certificate is countersigned by a transfer agent or registered by a
registrar other than the corporation itself or its employee. If an officer who
has signed or whose facsimile signature has been placed upon a certificate
ceases to be an officer before the certificate is issued, it may be issued by
the corporation with the same effect as if he were the officer at the date of
issue.
SECTION 2. SHARE CERTIFICATES: REQUIRED PROVISIONS. A certificate
representing shares of the corporation shall state upon its face:
(a) That the corporation is formed under the laws of this
state.
(b) The name of the person to whom issued.
(c) The number and class of shares, and the designation
of the series, if any, which the certificate represents.
(d) The par value of each share represented by the
certificate, or a statement that the shares are without par value.
A certificate representing shares issued by a corporation which is authorized
to issue shares of more than one class shall set forth on its face or back or
state that the corporation will furnish to a shareholder upon request and
without charge a full statement of the designation, relative rights,
preferences, and limitations of the shares of each class authorized to be
issued, and if the corporation is authorized to issue any class of shares in
series, the designation, relative rights, preferences, and limitations of each
series so far as the same have been prescribed and the authority of the board
to designate and prescribe the relative rights, preferences, and limitations of
other series.
SECTION 3. REPLACEMENT OF LOST OR DESTROYED SHARE CERTIFICATES. The
corporation may issue a new certificate for shares or fractional shares in
place of a certificate theretofore issued by it, alleged to have been lost or
destroyed, and the board of directors may require the owner of the lost or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify the corporation against any claim that may be made
against it on account of the alleged lost or destroyed certificate or the
issuance of such new certificate.
SECTION 4. REGISTERED SHAREHOLDERS. The corporation shall have the
right to treat the registered holder of any share as the absolute owner
thereof, and shall not be bound to recognize any equitable or other claim to,
or interest in, such share on the part of any other person, whether or not the
corporation
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<PAGE> 16
shall have express or other notice thereof, save as may be otherwise provided
by the statutes of Michigan.
SECTION 5. TRANSFER AGENT AND REGISTRAR. The board of directors may
appoint a transfer agent and a registrar in the registration of transfers of
its securities.
SECTION 6. REGULATIONS. The board of directors shall have power and
authority to make all such rules and regulations as the board shall deem
expedient regulating the issue, transfer, and registration of certificates for
shares in this corporation.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS OR OTHER DISTRIBUTIONS IN CASH OR PROPERTY. By
action of the board of directors, the corporation may declare and pay dividends
or make other distributions in cash, bonds, or property, including the shares
or bonds of other corporations, on its outstanding shares, except when
currently the corporation is insolvent or would thereby be made insolvent, or
when the declaration, payment, or distribution would be contrary to any
restriction contained in the articles of incorporation. Dividends may be
declared or paid and other distributions may be made out of surplus only. A
dividend paid or any other distribution made, in any part, from sources other
than earned surplus, shall be accompanied by a written notice (a) disclosing
the amounts by which the dividend or distribution affects stated capital,
capital surplus, and earned surplus, or (b) if such amounts are not
determinable at the time of the notice, disclosing the approximate effect of
the dividend or distribution upon stated capital, capital surplus and earned
surplus and stating that the amounts are not yet determinable.
SECTION 2. RESERVES. The board of directors shall have power and
authority to set apart, out of any funds available for dividends, such reserve
or reserves, for any proper purpose, as the board in its discretion shall
approve, and the board shall have the power and authority to abolish any
reserve created by the board.
SECTION 3. VOTING SECURITIES. Unless otherwise directed by the board,
the chairman of the board or president, or in the case of their absence or
inability to act, the vice presidents, in order of their seniority, shall have
full power and authority on behalf of the corporation to attend and to act and
to vote, or to execute in the name or on behalf of the corporation a consent in
writing in lieu of a meeting of shareholders or a proxy authorizing an agent or
attorney-in-fact for the corporation to attend and vote at any meetings of
security holders of corporations in which the corporation may hold securities,
and at such meetings he or his duly authorized agent or attorney-in-fact shall
possess and may exercise any and all rights and powers incident to the
ownership of such securities and which, as the owner thereof, the corporation
might have possessed and exercised if present. The board by resolution from
time to time may confer like power upon any other person or persons.
SECTION 4. CHECKS. All checks, drafts, and orders for the payment of
money shall be signed in the name of the corporation in such manner and by such
officer or officers or such other person or
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<PAGE> 17
persons as the board of directors shall from time to time designate for that
purpose.
SECTION 5. CONTRACTS, CONVEYANCES, ETC. When the execution of any
contract, conveyance, or other instrument has been authorized without
specification of the executing officers, the chairman of the board, president
or any vice president, and the secretary or assistant secretary, may execute
the same in the name and on behalf of this corporation and may affix the
corporate seal thereto. The board of directors shall have power to designate
the officers and agents who shall have authority to execute any instrument in
behalf of this corporation.
SECTION 6. CORPORATE BOOKS AND RECORDS. The corporation shall keep
books and records of account and minutes of the proceedings of its
shareholders, board of directors and executive committees, if any. The books,
records, and minutes may be kept outside this state. The corporation shall
keep at its registered office, or at the office of its transfer agent within or
without this state, records containing the names and addresses of all
shareholders, the number, class, and series of shares held by each and the
dates when they respectively became holders of record thereof. Any of such
books, records, or minutes may be in written form or in any other form capable
of being converted into written form within a reasonable time. The corporation
shall convert into written form without charge any such record not in such
form, upon written request of a person entitled to inspect them.
SECTION 7. FISCAL YEAR. The fiscal year of the corporation shall
be fixed by resolution of the board of directors.
SECTION 8. SEAL. If the corporation has a corporate seal, it shall
have inscribed thereon the name of the corporation and the words "Corporate
Seal" and "Michigan." The seal may be used by causing it or a facsimile to be
affixed, impressed, or reproduced in any other manner.
ARTICLE IX
AMENDMENTS
SECTION 1. The shareholders or the board of directors may amend or
repeal the bylaws or adopt new bylaws unless power to do so is reserved
exclusively to the shareholders by the articles of incorporation. Such action
may be taken by written consent or at any meeting of shareholders or the board
of directors; provided that if notice of any such meeting is required by these
bylaws, the notice of the meeting shall contain notice of the proposed
amendment, repeal, or new bylaws. Any bylaw hereafter made by the shareholders
shall not be altered or repealed by the board.
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<PAGE> 1
Exhibit 10(a)
FIRST AMENDED AND RESTATED
--------------------------
SECURED PROMISSORY NOTE
-----------------------
$10,500,000 Dated as of September 19, 1995
For value received, MERITAGE CAPITAL CORP., a Florida corporation,
f/k/a Meritage Hospitality Group Incorporated (the "Maker"), promises to pay to
MERITAGE HOSPITALITY GROUP INC., f/k/a Thomas Edison Inns, Inc., a Michigan
corporation (the "Holder"), or its assignee if Maker has actual knowledge of
such assignee, at the Holder's address at 40 Pearl Street, N.W., Suite 900,
Grand Rapids, Michigan 49503, or at such other place as the Holder may from time
to time specify by written notice to the Maker, the principal sum of TEN MILLION
FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($10,500,000.00). The outstanding
principal balance under this Note shall not bear interest; provided, however,
that if an Event of Default has occurred (as provided in Section V), then during
such time the Event of Default is continuing the outstanding principal balance
under this Note shall bear interest at 3% per annum.
I. STATED PAYMENT SCHEDULE
-----------------------
Principal under this Note shall be paid as follows:
A. Simultaneously with the execution and delivery of this First Amended
and Restated Secured Promissory Note, the Maker has made a voluntary prepayment
of the indebtedness evidenced hereby in the amount of SEVEN HUNDRED FIFTY
THOUSAND DOLLARS ($750,000), thereby reducing the principal indebtedness
evidenced by this Note to NINE MILLION SEVEN HUNDRED FIFTY THOUSAND DOLLARS
($9,750,000). The Maker shall have no obligation to make any further payments
under this Note until September 19, 2000.
B. Beginning on September 19, 2000, and continuing on the same day of each
successive year thereafter through and including September 19, 2005, the Maker
shall pay to the Holder principal in an amount equal to ONE MILLION SIX HUNDRED
TWENTY-FIVE THOUSAND DOLLARS ($1,625,000).
II. STOCK PURCHASE AGREEMENT; ORIGINAL NOTE;
-----------------------------------------
RIGHTS OF SETOFF, ESCROW AND CANCELLATION
-----------------------------------------
This Note is the first amended and restated version of the Secured
Promissory Note (the "Original Note") made and delivered by the Maker in
conjunction with, and as an integral part of, the transactions described in a
certain Stock Purchase and Sale Agreement dated September 19, 1995, to which the
Maker and the Holder are parties (the "Stock Purchase Agreement"), pursuant to
which the Maker acquired from the Holder certain common stock of the Holder. The
Holder, by resolution of its Board of Directors dated May 21, 1996, agreed to
accept this Note in substitution for and in place of the Original Note. The
Original Note shall be marked "cancelled" and returned by the Holder to the
Maker promptly upon execution and delivery of this Note by the Maker to the
Holder.
In accordance with paragraph 13.4 of the Stock Purchase Agreement, the
Maker will be entitled to reduce, on a dollar-for-dollar basis, any amounts
payable to the Holder pursuant to this Note by the amount of any judgment for
indemnity obtained by the Maker against the
<PAGE> 2
Holder, subject to satisfaction of the applicable conditions for such reduction
set forth in the Stock Purchase Agreement. Paragraph 13.5 of the Stock Purchase
Agreement sets forth the terms and conditions upon which the Maker shall be
entitled to make payments otherwise due under this Note into escrow pending
resolution of a claim for indemnity asserted by the Maker pursuant to the Stock
Purchase Agreement. This Note shall not be deemed to be in default on account of
failure to make a payment when due to the extent that such failure is
attributable to the existence of a claim for indemnity asserted by the Maker
against the Holder, provided that the Maker has complied in all material
respects with the requirements of Section 13 of the Stock Purchase Agreement.
Paragraph 1.2(c) and (d) of the Stock Purchase Agreement contain
certain rights in favor of the Maker to cancel, and receive a return of, this
Note.
III. OPTIONAL PREPAYMENT
-------------------
The Maker may, at its option, prepay the indebtedness evidenced by this
Note at any time, in whole or in part, without penalty or premium.
IV. STOCK PLEDGE; LIMITATION OF LIABILITY
-------------------------------------
This Note is secured by a certain Amended and Restated Stock Pledge
Agreement between Maker and Holder dated September 19, 1995 (the "Amended Stock
Pledge Agreement"). The Maker's liability under this Note and the Amended Stock
Pledge Agreement shall be limited at all times to the Maker's interest in the
collateral that is encumbered, from time to time, by the Amended Stock Pledge
Agreement, plus the positive amount, if any, determined from time to time by the
following formula (the "Liability Formula"):
M minus P, where:
M = $1,087,828.75, which represents the sum of (a)
the proceeds of the special dividend in the amount
of $.50 per share paid to the Maker in April 1996
in respect of the common stock of the Holder then
owned by the Maker [i.e., $.50 multiplied by
1,550,000 shares = $775,000.00], and (b) the
value, as of the close of trading on January 25,
1996 [being the date upon which the Holder's Board
of Directors waived the restrictions set forth in
Section 8.1 of the Stock Purchase Agreement on the
Maker's right to vote the shares of stock it
acquired pursuant to the Stock Purchase
Agreement], of the 54,405 shares of common stock
of the Holder owned by the Maker prior to
September 19, 1995, based upon the average of the
last reported "bid and ask" prices on January 25,
1996 (i.e., $6 bid/$5.50 asked, for an average
price of $5.75 per share, multiplied by 54,405 =
$312,828.75); and
P = the sum of Permitted Payments made by the Debtor
during the term of this Note.
The Debtor's interest in the collateral that is encumbered, from time to time,
by the Amended Stock Pledge Agreement, together with the amount determined by
the Liability Formula, is referred to herein as the "Maximum Recovery".
2
<PAGE> 3
The Holder shall neither seek, nor be entitled to, any recovery or
remedy against the Maker under this Note and the Amended Stock Pledge Agreement
other than the Maximum Recovery. Other than as described in the immediately
preceding paragraph, in no event shall the Maker be liable for a deficiency
judgment or other money judgment under this Note or the Amended Stock Pledge
Agreement.
V. EVENTS OF DEFAULT; REMEDIES
---------------------------
The failure by the Maker to duly and punctually observe or perform any
material obligation of the Maker set forth in this Note or in the Amended Stock
Pledge Agreement shall constitute an "Event of Default" under this Note. If an
Event of Default has not been cured within ten (10) days after receipt by the
Maker of written notice from the Holder of the existence of an Event of Default
(such notice from the Holder to specify in reasonable detail the act or omission
that has given rise to the Event of Default), the indebtedness evidenced by this
Note shall be in default (the date upon which the indebtedness evidenced by this
Note first is in default is referred to below as the "Default Date") and the
Holder thereafter shall have the right, at any time during the continuation of
the Event of Default, to accelerate the indebtedness evidenced by this Note and
to take such action as may be permitted at law or in equity (including but not
limited to the remedies provided for in the Amended Stock Pledge Agreement
referred to above) to collect the indebtedness evidenced by this Note, subject
in all events to the limitation on the Maker's liability under this Note set
forth above.
The Maker shall pay all costs of collection, including reasonable
attorney's fees, in case the indebtedness evidenced by this Note or any part
thereof is not paid when due, or in case it becomes necessary to protect the
security for this Note, whether suit is brought or not.
VI. NOTICES
-------
All notices and other communication hereunder shall be in writing and
shall be deemed give if delivered personally, sent by reputable overnight
courier, acknowledgment or receipt requested, or mailed by registered, overnight
or certified mail, postage prepaid, return receipt requested (such notice to be
effective on the date such receipt is acknowledged) as follows:
If to the Maker, addressed to:
------------------------------
Meritage Capital Corp.
40 Pearl Street, N.W., Suite 900
Grand Rapids, Michigan 49503
Attention: Christopher B. Hewett, President
If to the Holder, addressed to:
-------------------------------
Meritage Hospitality Group Inc.
40 Pearl Street, N.W., Suite 900
Grand Rapids, Michigan 49503
Attention: President
or to such place and with such other copies as the Maker or the Holder may
designate for itself by written notice to the other.
3
<PAGE> 4
VII. GENERAL
-------
Neither the failure of the Holder promptly to notify the Maker of the
existence of an Event of Default, nor its failure to exercise any right or
remedy it may have upon the occurrence of an Event of Default, nor the failure
of the Holder to demand strict performance of any obligations of the Maker under
this Note, shall constitute a waiver of any such rights during the continuation
of an Event of Default, nor shall any of the foregoing constitute a waiver of
any such rights during the continuation of any future Event of Default. Further,
acceptance by the Holder of partial payments following due acceleration of the
indebtedness evidenced hereby shall be deemed acceptance of payment on account
and shall not constitute a waiver by the Holder of the Event of Default or a
waiver of a waiver of the acceleration of such indebtedness.
The Maker waives presentment, protest and demand, notice of protest,
demand, dishonor and nonpayment of this Note. The Holder may extend the time of
payment or otherwise modify the terms of payment of the indebtedness evidenced
by this Note, and such extension or modification shall not alter or diminish the
Maker's liability under this Note.
VII. GOVERNING LAW
-------------
This Note shall be governed by and construed in accordance with the
laws of the State of Michigan.
This First Amended and Restated Secured Promissory Note is executed and
delivered on June 7, 1996, but is to be effective as of September 19, 1995.
MERITAGE CAPITAL CORP.
By: /s/ Christopher B. Hewett
---------------------------
Christopher B. Hewett,
President
4
<PAGE> 1
Exhibit 10(b)
AMENDED AND RESTATED STOCK PLEDGE AGREEMENT
-------------------------------------------
This Amended and Restated Stock Pledge Agreement is made as of
September 19, 1995, by MERITAGE CAPITAL CORP., f/k/a Meritage Hospitality Group
Incorporated, a Florida corporation (the "Debtor"), and MERITAGE HOSPITALITY
GROUP INC., f/k/a Thomas Edison Inns, Inc., a Michigan corporation (the
"Creditor").
STATEMENT OF FACTS
------------------
A. The Debtor and the Creditor are parties to a Stock Purchase and Sale
Agreement dated September 19, 1995, pursuant to Section 1.2 of which the Debtor
acquired 1,500,000 shares of common stock of the Creditor.
B. As payment for the shares of common stock referred to in Recital A
above, the Debtor executed and delivered to the Creditor the Debtor's Secured
Promissory Note dated September 19, 1995, in the original principal amount of
$10,500,000 (the "Original Note").
C. To secure the Original Note, the parties entered into a Stock Pledge
Agreement dated September 19, 1995 (the "Stock Pledge Agreement"), and a First
Amendment to Stock Pledge Agreement dated February 26, 1996 (the "First
Amendment").
D. Simultaneously with the execution and delivery of this Amended and
Restated Stock Pledge Agreement, the Debtor executed and delivered to the
Creditor the Debtor's First Amended and Restated Secured Promissory Note (the
"Substitute Note"). The Substitute Note is delivered to the Creditor in
substitution for and in place of the Original Note, which the Creditor shall
promptly mark "Canceled" and return to the Debtor.
E. The Stock Pledge Agreement and the First Amendment are to be
replaced in their entirety by this Amended and Restated Stock Pledge Agreement,
which shall secure the Substitute Note. All references below to the "Note" shall
be deemed references to the Substitute Note.
The parties agree that:
1. INCORPORATION OF STATEMENT OF FACTS. The Statement of Facts set
forth above is true and accurate and is incorporated into and forms a part of
this Agreement.
2. GRANT OF SECURITY INTEREST; RELEASED COLLATERAL. (a) The Debtor
grants and conveys to the Creditor a security interest in (i) 1,392,858 shares
of the common stock of the Creditor acquired by the Debtor pursuant to the Stock
Purchase Agreement (such 1,392,858 shares of common stock are referred to below
as the "Pledged Shares"); (ii) all dividends, distributions and other sums paid
or payable to or for the benefit of the Debtor on account of or in respect of
the Debtor's status as owner of the Pledged Stock, including without limitation,
the Debtor's right to receive cash and noncash dividends and distributions from
the Creditor in respect of the Pledged Stock and the Debtor's right, if any, to
the redemption of the Pledged Stock by the Creditor; (iii) all new, substituted
or additional shares of Pledged Stock or other securities of the Creditor at any
time issued to or for the benefit of Debtor on account of or in respect of the
Debtor's status as owner of the Pledged Stock, including without limitation, any
such stock or securities issued by reason of or in connection with any dividend,
reclassification,
<PAGE> 2
readjustment or other change with respect to the Pledged Stock made or declared
in the capital structure of the Creditor; and (iv) all proceeds (whether cash
or noncash) and products of each of the foregoing. The items of collateral
described in clauses (i)-(iv) of this Paragraph are collectively referred to in
this Agreement as the "Collateral".
(b) The Debtor shall use all cash dividends paid with respect to the
Pledged Stock solely to pay the installment payments required by the Note, as
and when such payments fall due. No provision of this Stock Pledge Agreement
shall obligate the Debtor to prepay, in whole or in part, any payment due under
the Note. All cash dividends paid with respect to the Pledged Stock may be held
or invested by the Debtor in such manner as the Creditor may from time to time
approve in writing (such approval not to be unreasonably withheld by the
Creditor so long as the investment proposed by the Debtor does not present an
unreasonable risk that the cash dividends so invested will not be available to
apply towards the payments required by the Note as and when the same fall due).
The cash dividends so invested by the Debtor shall constitute Collateral, but
the investment earnings, if any, on such cash dividends shall not constitute
Collateral, and the Creditor shall at no time have any security interest in any
such investment earnings, or in the proceeds or products thereof.
(c) The Debtor shall take such action as may be reasonably requested by
the Creditor in writing to effect this Agreement and the transactions
contemplated herein and to perfect the pledge of, and the Creditor's lien
against, the Collateral. The Debtor acknowledges receipt of all certificates and
other instruments and writings evidencing the shares of stock pledged pursuant
to the Stock Pledge Agreement, duly executed, endorsed and assigned in blank by
the Debtor. The Debtor agrees, promptly upon written request by the Creditor, to
execute and deliver such additional certificates and other instruments and
writings evidencing any other Collateral, in the same manner and form as
provided above for the Pledged Stock.
(d) In the Stock Pledge Agreement, the Debtor pledged and granted, as
security for the Original Note, a security interest in all 1,500,000 shares of
the Creditor's common stock acquired by the Debtor pursuant to the Stock
Purchase Agreement. Subsequently, the Debtor used the proceeds of a special cash
dividend of $.50 per share paid by the Creditor on April 26, 1996, to make a
voluntary prepayment in the amount of $750,000 on the indebtedness evidenced by
the Original Note. In consideration of such prepayment, the Board of Directors
of Creditor, by resolution dated May 21, 1996, agreed (i) to release and
discharge immediately the Creditor's security interest in 107,142 of the shares
of stock pledged by the Debtor to the Creditor pursuant to the Stock Pledge
Agreement, and (ii) to grant to the Debtor the one-time right, exercisable at
any time on or before September 19, 2000, to have additional shares released
from this Agreement in accordance with Paragraph 10(d) below. The Creditor and
the Debtor shall promptly arrange for the delivery of new stock certificates (i)
to the Debtor evidencing the Debtor's ownership of 107,142 shares of the
Creditor's common stock, free and clear of all security interests and claims by
the Creditor, and (ii) to the Creditor covering the Pledged Shares.
3. SECURED OBLIGATIONS. The security interest described in Paragraph
2(a) of this Agreement is granted for the purpose of securing the prompt and
full payment when due (and not merely the ultimate collectibility) of all
principal, interest, and other sums payable by the Debtor to the Creditor
pursuant to the Note (the "Secured Obligations").
2
<PAGE> 3
4. REPRESENTATIONS, WARRANTIES, ETC. The Debtor represents, warrants
and covenants to the Creditor that:
(a) The security interest granted hereby to the Creditor does now and
shall at all times during the term of this Agreement continue to constitute a
first and prior lien on the Collateral, subject only to such matters as may be
specifically agreed to in writing by the Creditor.
(b) The Debtor is the lawful and absolute owner of the Collateral,
subject to no other lien, encumbrance, right, claim or interest of any kind or
nature (other than such interests in favor of the Creditor). In addition, the
Debtor has the full and unrestricted right to pledge, assign and create a
security interest in the Collateral as described in and contemplated by this
Agreement.
(c) The Debtor has the legal capacity to enter into and perform all of
its obligations and agreements under this Agreement.
(d) No consent or approval for the entry into and performance by the
Debtor of its obligations and agreements under this Agreement is necessary.
(e) The certificates, instruments and other writings delivered by the
Debtor to the Creditor pursuant to Paragraph 2(b) of this Agreement are all of
the certificates, etc., representing the Pledged Stock and all rights and
interests with respect thereto.
(f) The execution, delivery and performance of this Agreement by the
Debtor will not affect or in any way impair the Collateral or the Debtor's or
the Creditor's rights or interests therein.
5. AGREEMENTS. So long as this Agreement is in effect, the Debtor
shall:
(a) Maintain the Collateral free from all pledges, liens, encumbrances
and security interests or other claims in favor of others, other than the
security interest in favor of the Creditor, and the Debtor will defend the
Collateral against all claims and demands of all persons.
(b) Comply with the requirements of all applicable state, local and
federal laws necessary to grant to the Creditor a valid lien upon, and a duly
perfected security interest in, the Collateral in compliance with the
requirements of this Agreement.
(c) Pay all reasonable costs and expenses of whatever kind and nature
that the Creditor may incur, including reasonable attorney's fees, in
protecting, maintaining, preserving, enforcing or foreclosing the Collateral or
the security interest granted to the Creditor hereunder, whether through
judicial proceedings or otherwise, or in defending or prosecuting any actions or
proceedings arising out of or relating to any of the Secured Obligations.
(d) Appear in and defend any action or proceeding arising out of or
connected with this Agreement, and pay all reasonable costs and expenses of the
Creditor (including, without limitation, reasonable attorneys' fees) in any such
action or proceedings in which the Creditor appears or determines to become
involved.
3
<PAGE> 4
(e) Not, without the prior written consent of the Creditor, sell,
assign, encumber, pledge, hypothecate, transfer or otherwise dispose of the
Collateral or any part thereof or any interest therein.
(f) Provide the Creditor, and the Creditor's agents and attorneys,
reasonable access to the books and records of the Debtor for inspection purposes
and permit the Creditor and the Creditor's agents and attorneys to make copies
hereof.
(g) Not pay (i) dividends on preferred shares issued by Debtor
outstanding on the date hereof (the "Current Preferred Stock"), or (ii) debt
service on indebtedness arising from the conversion of the Current Preferred
Stock in excess of the sum of (A) $50,000, which the Debtor may pay at any time
without notice to or consent from the Creditor, plus (B) an additional $25,000
during the one-year period beginning September 19, 1995, and ending September
18, 1996, and during each one-year period thereafter, on a cumulative basis
(i.e., the difference, if any, between $25,000 and the payments made pursuant to
this clause (g)(ii)(B) in any given one-year period may be carried forward and
paid in a subsequent one-year period, together with all payments then otherwise
permitted, without notice to or consent from the Creditor). The payments
referred to in clauses (g)(ii)(A) and (g)(ii)(B) of this Paragraph 5 are
referred to below as the "Permitted Payments".
6. PERFORMANCE BY THE CREDITOR. If the Debtor fails to duly and
punctually perform, observe or comply with any condition, term or covenant
contained in this Agreement, the Creditor, without notice to or demand upon the
Debtor and without waiving or releasing any of the Secured Obligations, may at
any time thereafter perform such condition, term or covenant for the account and
at the expense of the Debtor. All sums paid or advanced in connection with the
foregoing and all costs and expenses (including, without limitation, reasonable
attorneys' fees) incurred in connection therewith shall be paid by the Debtor to
the Creditor on demand, and shall constitute and become part of the Secured
Obligations.
7. DEFAULT. The Debtor shall be in default under this Agreement only if
an Event of Default (as defined in the Note) has not been cured within ten (10)
days after receipt by the Debtor or written notice from the Creditor of the
existence of an Event of Default (such notice from the Creditor to specify in
reasonable detail the act or omission that has given rise to the Event of
Default).
8. REMEDIES. Upon and at any time after a default under this Agreement,
the Creditor shall, at its option and with further notice to the Debtor (except
for such further notices, if any, that may be required by law) be entitled to
exercise any or all rights and remedies provided hereunder or by law, including
without limitation the rights and remedies of a secured party under the Michigan
Uniform Commercial Code. Any requirement under the Michigan Uniform Commercial
Code or otherwise of reasonable notice shall be met if the Creditor sends the
Debtor notice of sale and other notices required by law at least ten (10) days
prior to the date of sale, disposition or other event giving rise to the
required notice. Any sale held pursuant to the exercise of the Creditor's rights
hereunder may be public or private, and at such sale the Creditor shall have the
right, at any time and from time to time, to the extent permitted by law, to
sell, assign and deliver all or any part of the Collateral, at the Creditor's
office or elsewhere, without demand of performance, advertisement of notice or
intention to sell or of the time or place of sale or adjournment thereof or any
other notice (all of which are hereby waived by the Debtor to the extent
permitted by law), except such notice as is required by applicable law and
cannot be
4
<PAGE> 5
waived, for cash, on credit or for other property, for immediate or future
delivery, without any assumption or credit risk, and, provided that such is not
in violation of applicable law, for such terms as the Creditor in its absolute
and uncontrolled discretion may determine. In furtherance of the Creditor's
rights hereunder, the Creditor shall have the right, for and in the name, place
and stead of the Debtor, to execute endorsements, assignments or other
instruments of conveyance or transfer with respect to all or any of the
Collateral. All amounts collected by the Creditor as the result of any action
taken pursuant to this Paragraph 8, and the liquidation value of any other
property received as a result of such action, shall be applied by the Creditor
as follows:
(a) First, to the payment of all fees and costs including, without
limitation, reasonable attorneys' fees, incurred in connection with the
collection of the Secured Obligations or in connection with the exercise or
enforcement of the Creditor's rights, powers or remedies under this Agreement.
(b) Second, to the payment and satisfaction of all the Secured
Obligations.
The remedies provided in this Agreement in favor of the Creditor shall
not be deemed exclusive, but shall be cumulative, and shall be in addition to
all other remedies in favor of the Creditor existing at law or in equity.
9. VOTING RIGHTS. Unless and until title to the Pledge Stock is
transferred pursuant Paragraph 8 of this Agreement, notwithstanding any other
provision of this Agreement to the contrary, the Debtor shall retain all voting
and other rights associated with the Pledged Stock.
10. RELEASE OF LIEN AND INTERESTS IN THE COLLATERAL.
(a) For the purposes of this Paragraph, the following definitions
apply:
(i) "Release Date" means each day that Debtor either is
obligated to and does make a payment under the Note or makes a pre-payment of at
lease $500,000 on the Note;
(ii) "PSRD" means the number of shares of Pledged Stock then
pledged under this Agreement as of the business day immediately preceding a
release of Pledged Stock under this Paragraph 10;
(iii) "Balance Owed" means the outstanding principal balance
under the Note immediately following a payment of principal on the Release Date;
(iv) "Market Price Per Share" means the per share price of the
Pledged Stock as of the close of trading on the business day immediately
preceding the Release Date, reported as the NASDAQ "closing price", or if such
price is not available, the average of the last reported "bid and ask" prices;
(v) "Payment Amount" means the sum paid by Debtor on the
Release Date; and
5
<PAGE> 6
(vi) "Release Shares" means a number of shares of Pledged
Stock equal to:
Released Shares = PSRD - 120% x Balance Owed
-------------------
Market Price Per Share
(b) Upon each Release Date, Creditor shall release its liens and
security interests in the Released Shares and in any other Collateral
attributable to or derivative of each share of the Release Shares. Upon each
release of shares under this Paragraph, Creditor shall deliver to Debtor (i) all
documents and/or instruments evidencing each share of the Released Shares; and
(ii) any other Collateral attribute to or derivative of each such share.
(c) Notwithstanding anything to the contrary contained within this
Agreement, if the Released Shares is a negative number, Debtor shall have no
obligation to grant, and Creditor shall have no right to receive, a security
interest in any additional shares of the Pledged Stock or any other collateral.
(d) In consideration of the voluntary prepayment of the Note referred
to in Paragraph 2(d) above, the Debtor shall have the one-time right,
exercisable at any time on or before September 19, 2000, to have additional
Pledged Shares released from the lien and security interest created by this
Agreement, without further prepayment, provided that the aggregate value of the
Pledged Shares remaining immediately after the exercise of such right is no less
than 120% of the then outstanding balance of the Note. The conditions set forth
elsewhere in this Agreement for the release of Pledged Shares from the lien and
security interest created by this Agreement shall not apply to the release of
shares of Pledged Stock pursuant to this Paragraph 10(d). Further, in
consideration of the voluntary prepayment of the Note referred to in Paragraph
2(d) above, the Creditor consents to the merger of the Maker into an affiliate
of the Maker so long as the net worth of the surviving entity is equal to or
greater than the net worth of the Maker.
11. NOTICES. All notices, demands or requests required or permitted to
be given to either party hereto shall be in writing and shall be deemed given if
delivered personally, sent by reputable overnight courier, with acknowledgment
of receipt requested, or mailed by registered, overnight or certified mail, with
full postage paid thereon, return receipt requested (such notice to be effective
on the date such receipt is acknowledged), as follows:
THE DEBTOR:
-----------
Meritage Capital Corp.
40 Pearl Street, N.W., Suite 900
Grand Rapids, MI 49503
Attention: Christopher B. Hewett, President
THE CREDITOR:
-------------
Meritage Hospitality Group Inc.
40 Pearl Street, N.W., Suite 900
Grand Rapids, MI 49503
Attention: President
6
<PAGE> 7
or to such place and with such other copies as the Debtor or the Creditor may
designate for itself by written notice to the other.
12. LIMITATION ON LIABILITY. The Debtor's liability under the Note and
under this Agreement shall be limited at all times to the Debtor's interest in
the collateral that is encumbered, from time to time, by this Agreement, plus
the positive amount, if any, determined from time to time by the following
formula (the "Liability Formula"):
M minus P, where:
M = $1,087,828.75, which represents the sum of (a) the
proceeds of the special dividend in the amount of $.50
per share paid to the Maker in April 1996 in respect of
the common stock of the Holder then owned by the Maker
[i.e., $.50 multiplied by 1,550,000 shares =
$775,000.00], and (b) the value, as of the close of
trading on January 25, 1996 [being the date upon which
the Holder's Board of Directors waived the restrictions
set forth in Section 8.1 of the Stock Purchase
Agreement on the Maker's right to vote the shares of
stock it acquired pursuant to the Stock Purchase
Agreement], of the 54,405 shares of common stock of the
Holder owned by the Maker prior to September 19, 1995,
based upon the average of the last reported "bid and
ask" prices on January 25, 1996 (i.e., $6 bid/$5.50
asked, for an average price of $5.75 per share,
multiplied by 54,405 = $312,828.75); and
P = the sum of Permitted Payments made by the Debtor
during the term of the Note.
The Debtor's interest in the collateral that is encumbered, from time to time,
by this Agreement, together with the amount determined by the Liability Formula,
is referred to herein as the "Maximum Recovery".
The Creditor shall neither seek, nor be entitled to, any recovery or
remedy against the Maker under this Agreement or the Note other than the Maximum
Recovery. Other than as described in the immediately preceding paragraph, in no
event shall the Debtor be liable for a deficiency judgment or other money
judgment under the Note or this Agreement.
13. CONTROLLING LAW; SEVERABILITY. This Agreement shall be construed in
each and every respect in accordance with the laws of the State of Michigan. If
any provision hereof is in conflict with any laws or is otherwise unenforceable
for any reason whatever, such provision shall be deemed null and void to the
extent of such conflict or unenforceability, and shall be severed from and shall
not invalidated any other provision of this Agreement.
14. MISCELLANEOUS. This Agreement shall be binding upon and shall inure
to the benefit of the parties and their respective successors and assigns. No
failure or delay on the part of the Creditor in exercising any power or right
hereunder shall operate as a waiver thereof or as a waiver of any other term,
provision or condition hereof, nor shall any single or partial exercise of any
such right or power prelude any other or further exercise thereof or the
exercise of any other right or power hereunder. This Agreement may be amended
only by an instrument in writing signed by the parties hereto. The headings in
this Agreement are for convenience of reference only and shall not limit or
otherwise affect any of the terms hereof. Time shall be deemed to be
7
<PAGE> 8
of the essence in each and every respect hereunder. There are no third-party
beneficiaries to this Agreement.
This Amended and Restated Stock Pledge Agreement is executed and
delivered on June 7, 1996, but is to be effective as of September 19, 1995.
MERITAGE CAPITAL CORP.
By: /s/ Christopher B. Hewett
-------------------------------
Christopher B. Hewett
President
MERITAGE HOSPITALITY GROUP INC.
By: /s/ Christopher B. Hewett
------------------------------
Christopher B. Hewett
President
SECRETARY'S CERTIFICATE
-----------------------
The undersigned, as Secretary of Meritage Hospitality Group Inc. (the
"Company"), certifies that the foregoing Amended and Restated Stock Pledge
Agreement was executed by Christopher B. Hewett on behalf of the Company
pursuant to a resolution adopted by unanimous consent of the Company's Board of
Directors on May 21, 1996.
/s/ James R. Saalfeld
------------------------
James R. Saalfeld
Secretary
8
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> MAY-31-1996
<EXCHANGE-RATE> 1
<CASH> 2,160,732
<SECURITIES> 0
<RECEIVABLES> 743,033
<ALLOWANCES> 29,000
<INVENTORY> 167,357
<CURRENT-ASSETS> 3,658,903
<PP&E> 27,872,011
<DEPRECIATION> 14,333,777
<TOTAL-ASSETS> 19,030,374
<CURRENT-LIABILITIES> 1,723,514
<BONDS> 0
<COMMON> 30,200
0
0
<OTHER-SE> 1,593,644
<TOTAL-LIABILITY-AND-EQUITY> 19,030,374
<SALES> 6,692,223
<TOTAL-REVENUES> 6,692,223
<CGS> 1,339,262
<TOTAL-COSTS> 7,163,586
<OTHER-EXPENSES> 172,941
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 800,136
<INCOME-PRETAX> (562,604)
<INCOME-TAX> (191,285)
<INCOME-CONTINUING> (371,318)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (371,318)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
